IDEAS home Printed from https://ideas.repec.org/p/arx/papers/2003.07058.html
   My bibliography  Save this paper

Market states: A new understanding

Author

Listed:
  • Hirdesh K. Pharasi
  • Eduard Seligman
  • Thomas H. Seligman

Abstract

We present the clustering analysis of the financial markets of S&P 500 (USA) and Nikkei 225 (JPN) markets over a period of 2006-2019 as an example of a complex system. We investigate the statistical properties of correlation matrices constructed from the sliding epochs. The correlation matrices can be classified into different clusters, named as market states based on the similarity of correlation structures. We cluster the S&P 500 market into four and Nikkei 225 into six market states by optimizing the value of intracluster distances. The market shows transitions between these market states and the statistical properties of the transitions to critical market states can indicate likely precursors to the catastrophic events. We also analyze the same clustering technique on surrogate data constructed from average correlations of market states and the fluctuations arise due to the white noise of short time series. We use the correlated Wishart orthogonal ensemble for the construction of surrogate data whose average correlation equals the average of the real data.

Suggested Citation

  • Hirdesh K. Pharasi & Eduard Seligman & Thomas H. Seligman, 2020. "Market states: A new understanding," Papers 2003.07058, arXiv.org, revised Nov 2020.
    • Handle: RePEc:arx:papers:2003.07058
    as

    Download full text from publisher

    File URL: http://arxiv.org/pdf/2003.07058
    File Function: Latest version
    Download Restriction: no
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Hirdesh K. Pharasi & Suchetana Sadhukhan & Parisa Majari & Anirban Chakraborti & Thomas H. Seligman, 2021. "Dynamics of the market states in the space of correlation matrices with applications to financial markets," Papers 2107.05663, arXiv.org.
    2. Pharasi, Hirdesh K. & Seligman, Eduard & Sadhukhan, Suchetana & Majari, Parisa & Seligman, Thomas H., 2024. "Dynamics of market states and risk assessment," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 633(C).
    3. Seabrook, Isobel & Caccioli, Fabio & Aste, Tomaso, 2022. "Quantifying impact and response in markets using information filtering networks," LSE Research Online Documents on Economics 115308, London School of Economics and Political Science, LSE Library.
    4. Heckens, Anton J. & Guhr, Thomas, 2022. "New collectivity measures for financial covariances and correlations," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 604(C).
    5. Isobel Seabrook & Fabio Caccioli & Tomaso Aste, 2021. "An Information Filtering approach to stress testing: an application to FTSE markets," Papers 2106.08778, arXiv.org.
    6. Vishwas Kukreti & Hirdesh K. Pharasi & Priya Gupta & Sunil Kumar, 2020. "A perspective on correlation-based financial networks and entropy measures," Papers 2004.09448, arXiv.org.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:arx:papers:2003.07058. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: arXiv administrators (email available below). General contact details of provider: http://arxiv.org/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.